Nannette Hechler-Fayd’herbe, which markets do you analyze at Lombard Odier in the Gulf region?

Our teams cover macroeconomic outlooks for all six Gulf Cooperation Council countries, but with greater focus on the UAE, Saudi Arabia, Qatar, and Kuwait who are MSCI Emerging Market Index constituents.

Where do you see oil and non-oil growth in 2026 in the region?

OPEC+ reversal in output cuts will still be a major driving force for the region’s growth in 2026. Saudi Arabia, the UAE, and Kuwait should see even higher growth in their oil sectors in 2026 due to the ongoing output ramp-up. In Qatar, the start of the North Field production should be a strong positive for growth in next few years. The UAE should see continued positive momentum in its non-oil sectors, having diversified its economy away from oil-based sources.

«The Federal Reserve’s interest rate cuts should be a boon for the GCC’s capital markets.»

In Saudi Arabia’s case, the rebound in the volume of oil exports (and thus real GDP growth) will not be sufficient to offset the loss of oil-related revenues from persistently low oil prices, and the Kingdom will see its twin deficits widen again next year as a result. The resulting fiscal constraint should have a modest negative impact on non-oil sector performance. Qatar and Kuwait should have the fiscal means to cushion the negative impact of low oil prices.

How do you judge the latest lowering of interest rates by the US Federal Reserve?

The Federal Reserve’s interest rate cuts should be a boon for the GCC’s capital markets as they will be echoed by the region’s currency peg managers. If we are right in our forecasts for the Fed’s monetary policy easing to a terminal level of 3 percent by the end of 2026, the region’s monetary authorities will have to echo that move by bringing their respective benchmark rates down to a similar level. This should provide a meaningful boost to the region’s credit cycle as it represents non-recession easing.

Do you laud efforts to diversify the oil economies or do you see these efforts rather stagnating?

Anyone looking at a chart of renewable energy development in China would understand that economic diversification is a strategic necessity for GCCs. In August, 55 percent of passenger vehicles sold in China were «new energy vehicles» including EVs. In 2024, China’s electricity production from solar, wind, and bio energy reached 2 terawatt hours, which was double the level of Japan’s entire annual electricity production. China will always import some oil, but its dependence on the Gulf region’s oil will steadily fall in the long-run due to its energy security push through renewable sources.

«The UAE remains a role model for a successful economic transition.»

National Vision programmes put forward by the GCC countries clearly demonstrate that policymakers recognise these new challenges, and we think a great deal of progress has been made even though it will not be easy to meet all of the initial goals. For example, Saudi Arabia has made progress in areas including increasing its share of non-oil exports, government non-oil revenues, a higher female participation rate, and higher Public Investment Funds assets under management, among others. The contribution of the private sector to the GDP has risen from 40 percent in 2016 to 55 percent today.

Which GCC member states has taken the lead in this regard?

The UAE remains a role model for a successful economic transition, and we expect the country to keep leading the way in terms of forward-thinking reforms and economic development initiatives to achieve high but balanced growth. The UAE’s broader regulatory framework has been very friendly to the market and foreign talent, and it now seems that the UAE appears to be finding a way to strengthen their role in the global AI value-chain as well with its AI chip deals with the US. We think Qatar and Kuwait will take cues from the UAE’s approach over time in pushing for greater economic diversification outside the hydrocarbon sector.

Where do rank the region on the global risk scala?

We are not significantly different in our views of the region in comparison to ratings agencies who currently treat the four large GCC countries as AA or A sovereign credit. Although Saudi Arabia’s twin deficits and Iran-related tensions require close monitoring, we think the broader region should benefit from a stable outlook in 2026.

How did tariffs affect the region?

The impact has been mostly indirect, because the region doesn’t export much to the US directly, faces only a 10 percent tariff rate, and enjoys exemptions on its crude oil shipments to the US. Some negative impact from the main trading partners’ (e.g. China) loss of activities resulting from tariffs will be unavoidable, but we think it will be manageable given positive developments elsewhere (i.e. supply side shifts in energy sector, lower interest rates).

Is the New Silk Road a boon for the GCC or do tariffs on China take their toll on the GCC as well?

The New Silk Road is an interesting vision of regional development from China, and Beijing has worked hard to strengthen its strategic linkages to GCC countries since it put forward the overland and maritime silk road initiatives in 2013. We note that China has signed strategic partnerships with five GCC countries except Bahrain.

«A young population embracing technology can on the contrary be a powerful growth.»

The geopolitical circumstances have evolved meaningfully since then. Fragile security in the Red Sea corridor created some setbacks for Maritime Silk Road vision that appeared to look for synergy with Riyadh’s giga projects in the area. Progress on Chinese projects in Pakistan and Iran has been slow due to complex geopolitical and financial circumstances that the two countries are currently facing, and China itself recalibrated overseas investments after the capital outflows and yuan devaluation in 2015. And there is also a vision for the region’s connectivity in terms of IMEC proposal of Israel and India, with the US backing.

Stalled progress in the New Silk Road can be seen in China’s direct investment numbers in the region. China’s direct investments in the GCC region have rebounded since 2015, but are not large in comparison to the country’s direct investments in other regions such as ASEAN. It is still possible, however, that Saudi Arabia feels more motivated to get China’s financing and tech support for its infrastructure projects as the financial wriggle room for the Kingdom has narrowed due to the oil price dynamic.

Population growth is high in the Middle East, but AI and web3 make more jobs redundant? A dangerous mix? 

A young population embracing technology can on the contrary be a powerful growth recipe supporting social mobility. The Saudi example shows that along with societal change and strategic development of the non-oil sector, unemployment has fallen from 12 percent in 2016 to 6.3 percent currently, while female labour market participation has increased from 19.3 percent in 2016 to 36.3 percent at present. Over the same period, home ownership has increased from 47 percent to 63 percent as per the latest data available, and the country has improved its 2025 global competitive index ranking from the 29th to 17th place out of 140 countries.

Nannette Hechler-Fayd’herbe, Head of Investment Strategy, Sustainability and Research, CIO EMEA, Bank Lombard Odier.